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February showed gold and silver bounce back from January’s falls

March 3, 2011

After black January, in which gold prices fell by nearly 7% and silver prices by nearly 10%, during February these precious metals’ prices bounced back with major rises, mainly for silver prices. Let’s examine their recent rises:

In the following chart is the behavior of gold and silver prices during February 2011, in which both precious metal prices are normalized to the beginning of the month 1/2=100.

The chart above clearly shows an upward trend for these metal prices during the month.

Gold and silver prices continue to be very highly correlated to one another, as their daily percent changes showed a 63% correlation, however, the correlation was lower than the correlation shown during January with a 91% correlation, and even lower than in December with a 94% correlation.

This recent fall in correlation between the two data series might be related to silverprices rising higher than gold prices during February.

Correlations to major currencies

There was also another change in these precious metals’ prices that might shed light on the decline in correlation between gold and silver prices, and that is the correlation each of these prices had with EURO/USD: gold prices and EURO/USD showed a low correlation of -5.9%, wile silver prices showed a 18.1% correlation. Both of the metals showed strong correlation to AUD/USD with 62% correlation for gold and 53.8% for silver.

These correlations could be one of the factors related to the rise in gold and even more so of silver during February.

It will remain to be seen in March how these metals will react and will there be further changes in their correlations to other indexes.